Fed Minutes Show Some Concerns On Bond Purchases

Fed minutes show some disagreement on how long central bank should keep buying bonds

WASHINGTON (AP) â¿¿ The Federal Reserve will keep buying bonds indefinitely to try to keep long-term borrowing costs low. It's just not clear how long indefinitely will be.

Minutes of the Fed's last policy meeting show that officials were divided about when to halt the purchases.

Some of the 12 voting members thought the bond purchases would be needed through 2013. Others felt they should be slowed or stopped altogether before year's end. This group worries that the bond buying is keeping rates so low for so long that it could ignite inflation or encourage speculative buying of risky assets.

The Fed last month ended up approving open-ended purchases of $85 billion a month in Treasurys and mortgage bonds to replace an expiring bond-purchase plan and maintain its level of purchases.

The minutes covered the Fed's Dec. 11-12 meeting. In a statement after the meeting, the Fed said it planned to keep a key interest rate at a record low even after unemployment falls close to a normal level â¿¿ which it said might take three more years.

As long as the outlook for inflation is mild, the Fed said it could keep short-term rates near zero at least until unemployment drops below 6.5 percent. The unemployment rate in November was 7.7 percent. On Friday, the government will release the rate for December.

The statement was approved 11-1. Jeffrey Lacker, president of Federal Reserve Bank of Richmond, objected for the eighth straight time this year. Lacker has said he thinks the job market is being slowed by factors beyond the Fed's control. And he says further bond purchases risk worsening future inflation.

The minutes showed that "several" Fed policymakers thought the bond buying should probably stop well before 2013 ends.

Investors reacted sourly to the release of the minutes. Stock and bond prices fell modestly as concerns arose that the Fed might scale back its economic support for the economy sooner than many expected.